SK Innovation to Absorb SKIET as It Seeks to Cut Costs by 60 Billion Won a Year, but Normalizing the Separator Business Remains Key

[Financial News] SK Innovation Co., Ltd. will merge with loss-making SK ie technology (SKIET) in a move aimed at improving the fundamentals of its battery value chain. By integrating operations, production and marketing, and cutting financing costs, the company expects to improve EBITDA by about 60 billion won a year and turn the separator business profitable on an EBITDA basis within two to three years. However, with SKIET's separator plant utilization falling to around 20%, and amid an electric vehicle (EV) slowdown and continued low-price pressure from Chinese rivals, whether the separator business can normalize is expected to determine the success of the merger.
On the 26th, SK Innovation Co., Ltd. held an online briefing on the merger and said it aims to improve both the business structure and financial structure across the battery value chain through the combination with SKIET. Once the merger is completed, the separator business currently handled by SKIET will be absorbed into SK Innovation Co., Ltd. as a business division.
SK Innovation Co., Ltd. sees the merger not as simple support for a subsidiary, but as a restructuring of its business portfolio. The strategy is to strengthen profitability and financial stability in its existing energy businesses, including petrochemicals and liquefied natural gas (LNG), while also building a growth base for the expansion of future electrification markets.
In particular, the company is focusing on improving profitability rather than expanding scale in its battery and separator businesses. It plans to combine SKIET's product development capabilities with SK Innovation Co., Ltd.'s research and development (R&D) capabilities, while reorganizing production and marketing around key customers. It is also seeking to diversify its customer portfolio by expanding separator demand beyond electric vehicles (EVs) to include energy storage systems (ESS).
The merger is expected to generate annual cost savings of about 60 billion won. The company will consolidate overlapping organizations and management functions that existed under the separate listed structure, while streamlining production and marketing operations. It also expects to reduce SKIET's financing costs by leveraging SK Innovation Co., Ltd.'s relatively stronger credit profile.
Through these measures, SK Innovation Co., Ltd. aims to turn the separator business EBITDA-positive within two to three years. In the merger filing, the company projected a return to operating profit in 2029.
The key factor that will determine the success of the merger is whether the separator business can be normalized. Utilization at SKIET's separator plants stood at only about 20% in the first quarter of this year. As sales have declined due to slower growth in the EV market, fixed-cost burdens have increased amid expanded supply and price competition from Chinese companies.
If the recovery in the separator market takes longer than expected, the cost-saving effects of the merger could be limited. After the merger, SKIET's losses will be reflected directly in SK Innovation Co., Ltd.'s earnings rather than being excluded through non-controlling interests. If utilization recovery is delayed and fixed-cost pressure continues, the separator business could remain a drag on SK Innovation Co., Ltd.'s results despite the projected 60 billion won annual EBITDA improvement.
Concerns over shareholder dilution are another hurdle. The new shares to be issued in connection with the merger amount to about 2.6% of SK Innovation Co., Ltd.'s existing shares outstanding. The company believes that value gains from post-merger integration (PMI), cost reductions, and a narrower separator loss could offset the dilution from the new share issuance.
Plans to expand shareholder returns will also depend on how quickly the separator business normalizes and the financial structure improves. SK Innovation Co., Ltd. was unable to pay dividends after posting large losses for two consecutive years through last year, as it prioritized financial stability. Going forward, it plans to decide its shareholder return policy by taking into account medium- to long-term earnings, net debt, investment plans, and free cash flow.
A SK Innovation Co., Ltd. official said, "This merger is a preemptive measure to shield the entire group from financial risk," adding, "We will strengthen financial stability through business structure efficiency and ensure it leads to higher corporate value."
[email protected] Lee Dong-hyeok Reporter